Prostitution may be mankind's oldest profession, but commerce surely started only days later, and has had an equally conflicted relationship within human communities. On the one hand, people love the benefits of trading. On the other, they envy the wealth acquisition of successful traders, and they deeply fear becoming the butt of sharp trading practices and fraud. On one level, the story of Jesus casting out the money lenders is an example of a community's populist response when it perceives that a small group of the community is profiting too much from commerce.
Fast forward to the 21st century, and the commerce and entrepreneurial-related issues of how much money a person should make, how they should make it, how they should spend it, and how much the community should share in spending decisions (taxes, infrastructure and entitlements) are still white-hot in every community on earth.
When an issue has been on everyone's mind for thousands of generations, the brain will develop instinctive thinking about it. But commerce is not easy for instinctive thinking to wrap around. It’s hard for it to produce quick, warm and fuzzy ways of thinking that work well. This is because there are so many ways to engage in it, and most brush up on Us versus Them thinking. In Neolithic Village environment commerce is an exciting mix of contest and cooperation. It is very much like a sporting contest. There is lots of bargaining, and each side wants the bargaining process to get them the best of the deal. There are lots of bargaining tactics to be learned, as in, analytical thinking. Likewise, commerce’s Industrial Age cousin, entrepreneurship, is even harder on instinctive thinking because there is so much new happening when a new style of enterprise is being launched. Commerce and entrepreneurship are both hard because there are so many ways they can work well and so many ways they can fail. Instinctive thinking likes to support a handful of right answers, but commerce has always succeeded in many ways. Commerce remains mostly an analytic-thinking process.
But instincts have developed, and what follows is an observation of some of the instincts that affect how commerce is conducted in a community.
Commerce started as barter with strangers. In the Neolithic Village lifestyle contact with strangers was rare so the Us versus Them instinct thinking was strong - it's more OK to cheap-shot strangers than family and close neighbors. As a result Stone Age and Agricultural Age commerce was a risky undertaking, and it usually had a lot of well-armed security mixed in - caravans had guards, trading ships had marines, trading places such as trading posts or temporary trading grounds were fortified. And the bartering process itself was caveat emptor - let the buyer beware - a merchant had to be on his toes.
As a result those who indulged in a lot of inter-village trading were exceptional in their thinking. Few village members could do it well, or even wanted to. Those who took up trading had to frequently and effectively navigate “alien environments” of strange villages and strange people. Their thinking style had to be comfortable with “strange” in its many forms.
The result is that for much of commerce's history merchants have been considered a little-to-a-lot outside of the mainstream community. When times were good this difference was tolerated, when times got scary merchants could become witch-hunt targets along with other village “outsiders”... but with a difference. Because they used lots of security in day-to-day operations, merchants were surrounded by a lot of “muscle” while the average “witch” did not have protection - no question who got sacrificed for angry god appeasing first!
But if times got bad enough, as in seriously scary plague, flood, famine or the like, the merchants did get on the appeasement list. In calmer times they would suffer from The Curse of Being Important - the community would pass prescriptive laws about how to conduct commerce. An example of this is usury laws - rather than let the borrower and lender decide between them what is appropriate, the community prescribed the proper interest rate on a loan.
Another merchant characteristic was that they tended to be free thinkers. They traveled more, they had to deal with alien situations more often, and they did not gain a lot from being conformists. Right and wrong was not clear and obvious in day-to-day dealings, their world was gray from day one, and because new ideas could bring new opportunities, they listened more openly than most people. And, they dealt a lot with money (as soon as that concept was invented), so it was not surprising that finance was spawned from commerce and the two have always stayed closely tied.
The question of “who should get what” has been with mankind since well before mankind was the homo sapiens species. Most kinds of animals have dominance disputes about who should get what, and even plants do so in subtle ways.
In Neolithic Village environments the total amount of “goodies” to have disputes over was small. Because Neolithic humans lived a semi-nomadic lifestyle, the total goody count only consisted of what could be eaten from day-to-day and carried from one village site to the next (after the good times ran out at a particular location). As a result goodies were a small part of the lifestyle and communal sharing arrangements worked well. This environment is what human instinctive thinking is well designed for.
But Agriculture Age lifestyle was a huge game changer - if people are living their whole lives in one or just a handful of places, the goody count can rise astronomically, and who gets what becomes a much bigger issue. We're talking fertile valleys filled with permanent farms, irrigation systems, and cities now, something quite different from semi-nomadic villages. At first instinctive thinking was totally unequipped for this. But Agricultural Age farms have been around a long time now, about two hundred generations for those valleys that were first settled. This means mankind's instinctive thinking is beginning to adapt to this lifestyle, but the adaptation is far from complete.
The strong instinct that Neolithic Village thinking supports is “fairness”. In that environment this concept of communal sharing helped the village survive better. When people make their choices based on “what is fair” and “helping the poor”, they are using thinking that is well adapted to the Neolithic Village environment. Sometimes this thinking works well in the Industrial/Information Age environment, but not always.
Whether it works well or not, it is a powerful concept. And if people have many choices available to them because they are prosperous, and they “let their heart be their guide” when they are choosing, fairness will be a big factor.
Fairness and commerce, however, often butt heads. Commerce is not about being fair, it's about winning in an exchange. The other guy can win, too, and should if you are going to do more trading in the future, but fairness is not a big part of the thinking mix.
Fairness thinking also includes a lot of prescriptive, conformity thinking, “There is one right way to handle this situation and we all should handle it the same way. That is fair.” This grates against commercial thinking because a merchant gets used to dealing with many situations and handling each in a different way. Once again, a shades-of-gray environment compared to the black-and-white of the fairness environment.
All of the above have been constants for hundreds of generations. These have been givens of the commercial environment since the dawn of history. But living on earth is full of surprises, and the Industrial/Information Age pulled a brand new rabbit out of the living-on-earth hat: Growing the resource pie! I have discussed this concept in the previous chapter, so now let's look specifically at how this has affected the relationship between commerce, commercial people, and the rest of the community. Where are strange choices being made because instinctive thinking is not working well in modern circumstances?
The modern civilized world is about change. We don't have the same tools and techniques that our grandparents did. Experimenting is at the core of getting interesting new tools and techniques, and most experimenting is failure. Many, many things must be tried before successful tools and techniques are discovered. It's a messy process. When a community gets scared or annoyed by the mess of constant experimenting, and starts saying - “Don't do any more,” or “Do your experimenting the right way... and we're telling you what the right way is" - then progress is slowed.
When I was at MIT in the 1970’s there was a community uproar because one of the labs was doing experimenting with genes. The researchers there pointed out that the kind of experimenting they were doing was small potatoes compared to what was happening in the natural selection process taking place in the woods and ponds nearby, but the community didn’t listen. The research was allowed to proceed only after overly-elaborate precautions were put in place at the lab. These simple experiments on harmless bacteria were treated as if they could be plague bringers. Experiments that should have taken days or weeks to perform now took weeks to months.
Technology is obviously about experimenting, but so is commerce. And experimenting on how to conduct commerce comes up a lot. The experimenters are business people constantly trying new ways of doing things. A restaurant owner may put a new item on the menu then ask his or her customers, “How did that work out for you? Did you like it?” For this reason, one of the trickiest tasks for a community is deciding what the good and bad business practices are and trying to make laws about them. Here's an example from my own experiences.
When I was in the army I was one of those people who saved money. During Basic Training word of this got out, and I would be approached by some of my fellow recruits with, “Hey! Loan me ten bucks today and I'll pay you fifteen on pay day next week.” Hmm... I loved that interest rate! For a while I said, “Sure.” But then I discovered that some of those newly made buddies were not happy to pay me as promised. It was a mystery to me why they frowned when I tracked them down on payday and asked for what they had promised me, but they did. So, after a couple of experiences with this, I stopped, and that was it. This is an example of experimenting: I tried, I was not happy with the result, so I cut bait on it. (Next I tried a different experiment and sold photos I took of my buddies. That worked out better.)
The curious and expensive part of this experience is that we have laws about how to loan money, and those laws say I was charging a usurious interest rate. I was being a loan shark. And even though I was providing a service to people who approached me, who wanted this service, I was illegal. In my case it never came to a crisis, but the point is that some third party was declaring what was right and wrong in a circumstance they were not participating in. When a law becomes irrelevant to a circumstance it is being applied to, it's expensive. It's costing the community lots of resources. In the case of business laws, customers either can’t get what they want, they have to jump through procedural hoops to get what they want, or they have to pay more because selling the low-cost version of what they want is prohibited.
This 15 Jul 14 WSJ article, “A Misguided Campaign Against Payday Lenders: Short-term borrowers, it turns out, tend to know what they're getting into” by Ronald L. Rubin, discusses contemporary feelings about payday lending and efforts to regulate it. From the article, “Payday lenders are widely vilified as predators who take advantage of desperate people, though research doesn't support that view. Studies by the Pew Charitable Trusts of storefront payday lenders over the past two years found that six out of seven borrowers say the terms and conditions are clear. Most borrowers have other options to deal with a cash shortfall, such as cutting back expenses or borrowing from friends and family.”
This problem is at its worst when the commerce style is highly emotional. Money, sex, habitation, and children are top of the list on emotion-laden commerce, so most communities regulate these on a “let your heart be your guide” basis, and the result is high costs, low flexibility, and lots of irrelevance.
Those who engage in commerce often cry out for a “laissez-faire” environment - one in which transactions between private parties are free from tariffs, government subsidies, and enforced monopolies, with only enough government regulations sufficient to protect property rights against theft and aggression. Few larger communities have ever granted this to its commerce people. The Curse of Being Important along with the instinctive thinking fears mentioned above combine to produce lots of government involvement in how commerce is conducted. But from time-to-time and place-to-place there are differences in how government involvement is enacted. These differences have produced dramatic differences in the lifestyles of the communities. Think of the differences between communist and capitalist communities.
Many of these differences are the heart of history. In the following examples, the first location mentioned held fairness as more important in the communities’ legal and moral frameworks. The second location mentioned respected commerce more - they gave their business community a freer hand.
Here is the mystery: In spite of their brilliance in the historical record, in all these cases the balance shifted with time, and the frameworks became more similar. The Golden Age ended for the second party. This consistency in outcome indicates that instinctive thinking is powerful, and heart-following will prevail even when it means less progress. I talk about this more in my section on The Midwest Disease.
Business financing is about giving a business resources on the promise that even more resources will be returned in the future.
In Neolithic times there were only barter goods to hand over and oaths (making a serious promise) to get in exchange for them. One of the things the civilized lifestyles have done is dramatically expand the ways trusting can be carried out. Fast forward to the Information Age, and we are now developing methods to pay for goods and services with mobile phones. This is seriously advanced trusting. Every decade brings new ways to cooperate and with those come new ways to finance.
The attraction of finance is the potential to acquire more in the future. The fear of finance is the potential for failure or fraud to reduce that future return to little or nothing. The good intention of regulations is to reduce the prospects for failure and fraud. Sadly, because finance changes constantly and quickly, it's difficult for regulations to keep up. Like investing itself, there is a lot of “trust me” built into the regulatory framework, it is far from a certain thing.
Commerce and finance have been around a long time. But they are outliers to the average human experience. As a result they often run counter to human instinctive thinking. In particular, they cross against the concepts of prescriptive conformity and communal fairness that served well in the Neolithic Village environment, and bring up deep fears of being cheated that Us versus Them thinking sustains. The Industrial and Information Age have brought something brand new to human existence - the constantly growing resource pie that comes with steadily increasing productivity.
Given all of the above it's not strange that humans have a hard time figuring out how to make commerce and finance work smoothly. But doing so is very important to improving our existence on earth, so we should keep working hard at it. This means teaching ourselves to use sufficient analytic-thinking when we are dealing with commerce and finance.
This 28 Jul 12 Economist article, “Les Miserables: Europe not only has a euro crisis, it also has a growth crisis. That is because of its chronic failure to encourage ambitious entrepreneurs”, compares the environment for startup business entrepreneurs in Europe with other parts of the world.
The tussle between the opportunity and the fear goes on and on. This 7 Sep 12 WSJ Intelligent Investor article, “Want to Buy a Private Stock” by Jason Zweig, talks about how regulations will soon change on who private offerings can be marketed to. The changes seem to be the result of the same sort of schizophrenic thinking that characterizes much investment regulation: should we open opportunity or protect?
This 7 Sep 12 Mail Online article, “Millionaire US Businessman Pumps Huge Sums into the Idyllic English Village he lives in but he is still not liked by local ‘nimbys’” by Martin Robinson, is a good description of the culture clash that often happens when an entrepreneurial type starts splashing money around in a backwater area. The people who are living there like the area because it is a backwater, so they often have complaints about the changes this enterprising type wants to make.